Carlson v. Clapper

Background

Carlson Produce, LLC and ScanX entered into a four-year Services Agreement on July 1, 2016. Carlson Produce agreed to handle ScanX’s revenue-generation activities. ScanX agreed to pay $210,000 per year for consulting activities, a 35% of salary annual bonus, 5.5% of ScanX stock vesting over four years, and certain preapproved expenses. Rock Clapper signed the agreement for ScanX.

ScanX paid Carlson Produce for the first two months but allegedly did not pay afterward. Carlson Produce said that Clapper later represented that investment money would be used, at least in part, to pay the amounts owed. Carlson Produce stopped performing on February 2, 2018, after concluding that ScanX would not fulfill its obligations.

The case originally included claims for breach of contract, breach of the duty of good faith and fair dealing, fraud, promissory estoppel, and quantum meruit or unjust enrichment. The court had previously entered default judgment for Carlson Produce on its breach-of-contract claim against ScanX. The only remaining claim addressed in this opinion was Carlson Produce’s fraud claim against ScanX and Clapper.

Motions and evidence

Carlson Produce moved for summary judgment on the fraud claim. Clapper opposed that motion and filed a cross-motion for summary judgment. Carlson Produce also moved under Federal Rule of Civil Procedure 56(d) to defer or deny Clapper’s motion and sought to exclude Clapper’s declaration under Rule 37.

The court did not deem Carlson Produce’s requests for admission admitted because they were served after the discovery deadline and Carlson Produce had not obtained permission to serve them late. The court also did not consider Clapper’s declaration to the extent it attempted to contradict admissible evidence on which Carlson Produce relied, because Clapper had not responded to discovery requests covering the documents and topics addressed in the declaration. The court sustained Clapper’s objection to new allegations about an alleged July 2017 misrepresentation because Carlson Produce raised them for the first time in reply materials.

Fraud claim against Clapper

Carlson Produce asserted promissory fraud. Promissory fraud is a claim that a person made a promise without intending to perform it, thereby making an implied false statement. The elements are a misrepresentation, knowledge that it was false, an intent to induce reliance, justifiable reliance, and resulting damage.

Carlson Produce did not claim that Clapper made false statements to induce it to sign the original Services Agreement. Instead, it argued that Clapper made later statements to induce Carlson Produce to continue performing while Clapper and ScanX allegedly did not intend to pay.

The court denied Carlson Produce’s motion for summary judgment against Clapper because genuine disputes of material fact remained concerning misrepresentation, knowledge of falsity, and intent to defraud. The court found that Clapper’s statements about investment funds and possible payment were ambiguous and could not be treated as express promises or proof of fraudulent intent as a matter of law. The court also found that nonpayment alone was insufficient to establish an intent not to perform.

The court separately denied Clapper’s cross-motion for summary judgment. Although Carlson Produce’s evidence of fraud was weak, the court concluded that the admissible evidence was not insufficient as a matter of law to support a finding that Clapper was liable. The court denied Carlson Produce’s Rule 56(d) motion as moot.

Fraud claim against ScanX

ScanX did not obtain new counsel after its former counsel withdrew and did not respond to Carlson Produce’s summary-judgment motion. The court nevertheless explained that an unopposed summary-judgment motion cannot be granted solely because no opposition was filed; the moving papers must also show that no genuine issue of material fact exists.

Because Carlson Produce’s fraud claim against ScanX was based on the same conduct as its claim against Clapper, the court denied Carlson Produce’s summary-judgment motion against ScanX for the same reasons.

Economic-loss rule

The court then considered whether California’s economic-loss rule barred the fraud claim. The rule generally requires a plaintiff to pursue contract remedies for purely economic losses caused by disappointed contractual expectations, unless the plaintiff shows harm beyond a broken contractual promise.

Carlson Produce argued that an exception applied because Clapper fraudulently induced it to continue performing. The court rejected that argument. Carlson Produce conceded that it was not fraudulently induced to enter the original Services Agreement and provided no evidence that the parties formed a new contract when Clapper allegedly made later promises of payment. The court further concluded that any later promise concerned the same performance required by the original agreement and that Carlson Produce identified no injury beyond not receiving payment under that agreement.

The court therefore concluded that the economic-loss rule barred Carlson Produce’s fraud claim against both Clapper and ScanX. It dismissed that claim with prejudice.

Disposition

The court denied Carlson Produce’s motion for summary judgment, denied Clapper’s cross-motion for summary judgment, denied Carlson Produce’s Rule 56(d) motion as moot, and dismissed Carlson Produce’s remaining fraud claim against Clapper and ScanX with prejudice.